A report from Financial-Planning.com notes an unsettling trend in bankruptcy filings: in recent years, the number of Certified Financial Planners (CFPs) filing for bankruptcy protection has increased. CFPs are highly trained financial experts who must undergo rigorous training and pass difficult tests in order to become certified.

In 2010, according to sources, as many as a quarter of the disciplinary cases heard by the CFP Board involved CFPs filing for bankruptcy protection. So far in 2011, that number is on pace to reach one-third of all cases.

The History of Bankruptcy among CFPs

In fairness, the CFP board only began tracking bankruptcy statistics in 2010, though its guidelines have always required the board to investigate any personal or business bankruptcy filings it heard about. Still, the frequency of bankruptcy filing seemed high to Board members, and at least one attributed the 2010-to-2011 climb to the failing economy.

One encouraging fact that emerged in the Financial-Planning.com report was that the Board takes a number of factors into consideration when deciding how to proceed after a CFP’s bankruptcy. Depending on the circumstances, the Board may:

• Offer censure or some sort of penalty. Some CFPs who file for bankruptcy are required to take remedial courses, though they are allowed to continue practicing. Even when CFPs are allowed to move forward with practice, though, they may have difficulty bouncing back after filing for personal or business bankruptcy. Sources indicate that CFPs have reported mixed results after attempting to restart a financial planning enterprise post-bankruptcy.
• Revoke a license. In cases that the Board judges to be egregious, it might revoke a CFP’s license to practice financial advising. Cases that raise particular red flags, sources note, are those in which actions of the CFP clearly and directly caused the debt that led to bankruptcy and second or third bankruptcy filings.
• Do nothing. If the circumstances are beyond the bankruptcy filer’s control (for example, if the CFP filed for bankruptcy to eliminate debts associated with medical bills), the board may take no disciplinary action. It does not consider such bankruptcy filings to indicate any “fault” on the part of the filer.

Comparison to the General Public: Bankruptcy Figures

Interestingly, the CFP’s bankruptcy filing numbers are not quite in step with the rest of the country’s. While total consumer bankruptcy filings peaked among the general U.S. population in 2010 and have declined this year, filings among CFPs are still rising—and perhaps may not hit their peak for some time.

Of course, the figures associated with CFP bankruptcies cannot be considered quite as exhaustive as those for the rest of the country, especially since the CFP Board has only just begun collecting data on this particular phenomenon.